More vibrant stock market
The first five days of the market since the new Pakatan Harapan government took over has been exciting to say the least. While volatility ruled the market, it was undeniable that suppressed bullish undertones were surfacing.
If one were to simply look at the FBM KLCI index, Bursa Malaysia was simply up 12 points to 1,858 over the last five trading days. The mood, however, has swung tremendously.
On hindsight, it did appear as if the market was warning investors of a regime change. The market never lies. Political stocks were dropping like a rock, buying was so extremely muted and volumes had never been thinner.
On May 14, perhaps the most exciting market day in a long time, stocks of the old regime fell to new lows, while those linked to the new regime rose.
Nonetheless, with the new government emphasising meritocracy and transparency, it would appear that those who still adopt the crony capitalism mentality will not survive in this new regime. Contracts aren’t going to be dished to a company simply because it is close to the new government.
Over the last few days, we have seen some of the biggest beneficiaries of the old regime, such as George Kent (M) Bhd and MyEG Services Bhd hit limit-down for two consecutive days, compelling Bursa Malaysia to call a lower price limit on both stocks Wednesday.
As new policies and reforms are announced by the hour, what is obvious is that there is a strong will to change. It is early days, and implementation will be key. Nonetheless fund managers and those in the investing fraternity are hopeful and share with us what they hope to see. > Outlook on market
It certainly has brightened considerably with the elections over and with the change in government.
However, major challenges are aplenty as the previous government has compromised the structural integrity of the country and the economy. Long-term structures have deteriorated significantly to the point of near collapse. Bad financial health of the government, the failure of key government institutions, the failed education system and the brain drain are just some of the key issues needed to be attended to urgently. The reforms agenda looks promising under the new government and most believe better days are ahead.
The new government is eager to prove its worth over the next five years to secure its next mandate. Malaysia has a lot to catch up because the world has changed a lot since. The key lies in not returning to the old ways of doing things but to do things differently.
> Impact of meritocracy and transparency
Open tenders will bring best quality of work at most competitive prices, meritocracy will bring best performance and zero tolerance on corruption can prevent leakages. The combination of these three actions can only mean the lowest cost of doing business, maximum profitability and best growth potential.
> Impact on currency
Our currency outlook depends on how we manage our country’s resources. The previous government has mismanaged the economy such that we are relying on consistent currency devaluation or piling up on debts for growth. We need to reduce debts urgently to avoid credit downgrades or face potential defaults should there be a global downturn.
In the short term, the outlook is heavily dependent on the speed and depth of reforms, but in the long term, restoring of key competitive advantages that we have lost has most impact.
> How to attract big money into the market
We need to stop all the unnecessary mega projects immediately to reduce government deficit and debt. To save costs, only open tenders are allowed for government projects and procurement. To bring back business and investors’ confidence, bring back the rule of law, restore the independence of key government institutions, implement meritocracy, and zero tolerance on corruption.
Revamp the education system is a must to restore long term competitiveness of our country. Most important of all, we need to end the New Economic Policy and replace it with a better social-economic affirmative action plan for the weak and poor regardless of race and religion. It is high time we reverse the brain drain and attract talents back. Wealth creation for the nation lies with amassing the world talents, not resources. Big money will follow big talent.
> How to be a Singapore or a Hong Kong A market that is non-transparent tends to be corrupted or full of conflicts of interests and loopholes so it allows the invisible hand to act. Singapore and Hong Kong ranked lowest among all countries in terms of the corruption index, and that speaks volume.
Their authorities have good execution and do not flip-flop on their policies. They have strict implementation of the rule of law, strong and independent management, allowing free markets to work its way through. On top of all that, the authorities are open-minded and very progressive. They take risk on new ideas. > Outlook on market
It’s barely five business days since the new government has taken over, and so far the market has taken a cautious approach, but not without excitement and volatility. Looking at the slew of activities and initiatives taken, I expect the market to react positively to the measures taken by the new government under Prime Minister Tun Dr Mahathir Mohamad. Also, the relative market price earnings ratio is on the high side. Having said that, there is a lot of value to be extracted in selected sectors.
> Impact of meritocracy and transparency
The cost of doing business will definitely go down, and this will ultimately benefit consumers. However, the effectiveness of policy implementation will be the key, and it will take time. On a separate note, the GST being zerorised effective June 1 will be an immediate big plus if the prices go down by at least 6%.
Big ticket items such as property and automobile will become more affordable. Also with a fixed price on petrol, the automobile sector should see some potential upside if the ringgit sustains strength.
I expect government-linked companies (GLCs) to trend upwards in future, but this would depend on the level of realignment that the new administration is going to implement at the GLCs, including reducing political appointees and increase professional representation, which if implemented successfully will augur well for Malaysia’s future.
The chilly road ahead is only temporary during the initial transition period, with the slew of initiatives and actions taken by the new administration. With concrete timeline, I believe this will mean a stronger ringgit over time as Malaysia’s credibility improves together with much stronger local consumption.
> How to attract big money into the Malaysian market
The immediate action is to give the assurance that the new administration is able to take on the tasks of not just managing the country, but also to improve the entire political system, including stamping out corruption and putting Malaysia back on the right track.
Swift and decisive actions that is pro-market and pro-rakyat are important.
Prosecution of wrong-doers are equally important to the extent it does not run foul with the law. We need clarity on policy and treatment of corporates that are used to aligning themselves with the previous government. If we can do this, then foreign funds will re-enter our market with an impact.
> How to be a Singapore or a Hong Kong Before we start comparing Malaysia to the likes of Hong Kong or Singapore, we need to accord the new administration enough time to revamp and restructure the current system which has been there since independence. This is especially so in our race-based policies and protectionism attitude.
Once we can address these, then only can we start discussing Malaysia moving into the same league as Hong Kong or Singapore. > Outlook
I expect the market to stabilise in the short to mid term as there are positive developments daily with the newly-formed government. The ultimate goal of the new government is to tackle the economic issues that the nation is now facing, and this will boost up the con- fidence in the capital market.
The move by the new government in inviting various experts to contribute their views on the nation’s reform is a timely move. The market will need to take time to absorb all the new initiatives and changes that will be made. This is ultimately good in the mid to long run.
> Impact
Open tenders should be advocated as it promotes transparency in the bidding process and this will increase the competitiveness and competency of the government and thus establish a more vibrant business environment.
The cost of doing business should be lower by this initiative due to higher transparency in the bidding process. Earnings for GLCs might potentially be affected as they will be competing with the private sector on the same ground in securing contracts.
Overall, this should increase the competitiveness not only among GLCs but also the private sector. It will push all parties to be more competent in their delivery, as it now means that it is based on one’s ability to carry the contract.
As for GLCs, instead of having direct competition with the private sectors to bid for the same projects, they can consider switching their focus to projects that require a longer gestation period for investment returns. This can ensure that the private sector and GLCs are focusing on different or specialised areas that can further contribute to the growth of the economy. GLC can also serve as one of the anchor investors for public-private-partnership initiative (PPP), which I believe deserves a more in depts revisit or consideration by the new government.
> How to attract big money
I think for the first three to nine months, setting out the framework and reforming all elements – all this is like building a new house.
We need to ensure that all key pillars are in place. Then the next six to 36 months are to add all the details such as the bricks, mortar, design and finally, touching up within for the last next nine to 12 months thereafter.
I think the new government will have to demonstrate the importance of integrity to maintain and improve the confidence of the people as well as the capital market. They must show the people that the new government can deliver the reform promises and manifesto for GE14.
Besides, the new government needs to show unity in the administration and give full support to projects that will benefit the people and elevate the image and branding of the country. For example – Xiamen University, this project has attracted foreign direct investment of more than RM1.2bil to Malaysia, as well as the knowledge and technology transfer.
This project is testament of the benefits reaped because of the closer ties between